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The Effects of Supply Contracts on the Output and Price of an Exhaustible Resource

Blaine Roberts

University of South Carolina

This paper analyzes the effects of contracts for exhaustible resources. The conclusions are as follows: (1) for a single mine, with increased risk production for the spot market falls, long-term contracting increases, total output falls, contract length generally decreases, equilibrium spot prices increase, and contract prices may rise or fall; (2) with changing economies because of past production, output (spot prices) rises (fall) and then falls (rise), and this scalloped pattern remains with entry and storage included; and (3) contracting permits pairwise gains, may create losses for others, and prices are “fuzzy” signals as they may change for several different reasons.

DOI

10.2307/1885498

Volume

95 (2)

Pages

245

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